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Is Green Building Worth It?


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Auckland, New Zealand - August 21, 2015: Ironbank Building. It's a mixed-use office and retail building in Auckland, New Zealand, awarded 5-Star Green Star rating by the New Zealand Green Building Council.

The short answer is: Yes. Financially, ecologically, and socially, it pays to build green. 

Most developers and building owners are deeply influenced by the financial impacts of design decisions, such as building green. So, let’s look at four ways green building makes money sense.

Construction Costs

Most construction companies and design professionals seem to think that green building will cost extra. Green building is often approached as an alternative that can be slapped on at the end of the design phase, if there’s money left in the budget. The research, however, shows that green building does not necessarily cost more than conventional construction, when it is integrated early in the design. Project costs are driven by many different factors, not all of them related to the greenness of the building. 

The World Green Building Council published “The Business Case for Green Building” in 2013. This report looked at worldwide research from 2000 to 2012 regarding the costs and benefits of building green. In looking at design and construction costs, the report found the premium for LEED and BREEAM certified buildings was 0-12.5%. Various project types (academic buildings, offices, warehouses, etc) in the US, UK, Australia, Singapore, and Israel were included in the studies.

The report suggested that the reason there was such a low premium for green building is that the countries studied all have fairly active green building councils, which have lobbied for raising the bar when it comes to code standards. With a greener code, the gap between the baseline (code) and a green building shrinks, meaning it costs less to get there. This also means that in locations with lower code requirements, the cost to go green may be higher.

These findings show that green building doesn’t have to cost more in initial design and construction costs. Suggestions for reducing the cost to go green include: 

  • Adopting green building strategies early in the design process
  • Using design and construction teams experienced in green building
  • Employing an Integrated Design Process (IDP) to engage all team members early

Real World

A building in Santiago, Chile achieved LEED Silver with no additional construction costs (compared to a similar office building built recently in the same area), and it was able to sell all of its 54 office units before construction was complete. An IDP approach to design and construction actually helped reduce costs, as the team was able to work together to reach a common goal.

Building Value

The World Green Building Council report showed that green buildings generally garner higher sales and lease prices than standard code buildings. Green buildings are more desirable in the market, and have begun to flip the market in some areas, so that standard code buildings have a “brown discount,” and see lower prices for just being code compliant.

The report found that the average premium in sales price for a green building was 5-30%, depending on the level of certification it had achieved. This is based on studies looking at residential and office buildings in the US, UK, the Netherlands, Australia, Singapore, and Japan.

Rental premiums for green buildings were 0-17.3% in studies in the US and Australia. There was also found to be a 0-23.1% increase in rental occupancy rates for LEED and Energy Star buildings in the US.

It is important to remember that rental and sales prices and occupancy rates are influenced by multiple factors, many of which cannot be parsed out when looking at aggregate data about projects. These factors include location, local rental/lease rates, subsidies, etc. Also, in many of the studies looked at, the market seems to recognize only a certain level of certification, such as LEED Silver and above, showing that lower levels of greenness may not be good enough for today’s savvy consumers.

Real World

In London, a construction and development company partnered with a building owner to improve the green features in an older office building where it was the major tenant. Together, the team was able to reduce energy use by 56% and use 55% less water than code. The refurbishment is expected to have a 13-year payback, and the building kept an existing tenant who was looking to relocate.

Operating Costs

Operating and maintenance costs were found to be reduced in green buildings. Projects saw energy savings of 25-50% from code, depending on the area and the certification level achieved. Water savings averaged 39% for green buildings in one study.

The major issue to watch for when looking at energy and water savings is the gap between the design intent and modeling and what ends up actually being used in the real world. Many projects have found that the longed-for savings didn’t come about due to operational or design errors. Commissioning and the use of IDP seem to be the best ways to avoid these potential issues:

  • Modeling errors
  • Ineffective communication with design and construction teams
  • Commissioning issues or failure to include it in the project
  • Lack of management during occupancy phase

Real World

A lighting retrofit project in New York City, which included the use of LED lighting technology, occupancy sensors, and automatic lighting controls, is saving a 32-story office building over $1 million in electricity each year. With available local incentives, the team was able to reduce upfront costs by 13% with utility rebates.

Productivity and Health

Green buildings usually have less chemicals, use more outside air, and provide better ventilation than code buildings. Less chemicals and more fresh air often result in increased productivity and healthier employees.

When we look at the cost of a workplace operating over its lifespan, 85% of its costs are for salaries and benefits, 10% for rent, and 1% for energy. Therefore, increases in productivity can have a great effect on the profitability of a company.

The problem is productivity and health benefits are difficult to measure and quantify, and they are influenced by a number of factors. Many studies have tried to isolate certain factors and worked at translating productivity into financial metrics. Here are some of their findings:

  • When provided views to the outside, call processing speed at a call center increased 6-12%.
  • When daylighting is used, student test scores increased 5-14%, and workers were 18% more productive.
  • Worker efficiency increases by 23% from better lighting, 11% from better ventilation, and 3% from being provided with individual temperature controls.

The findings above are based on work product outcomes, indicators of health (absenteeism), and indicators of well-being (stress level and mood). The report concluded that green building design attributes contribute to occupant health and well-being, resulting in healthier, happier, and more productive employees.

Another way to look at the benefit of green buildings is to compare them to buildings where occupants suffer from “sick building syndrome.” This is an unfortunate feature of many buildings constructed with traditional building materials, little ventilation, and no connection to the outside world. Occupants suffer from upper respiratory issues, fatigue, dizziness, nausea, and a host of other symptoms, all of which are alleviated by leaving the building. Simple green building techniques, such as using materials with less chemicals and providing more ventilation and access to views, would help those who suffer and improve productivity and attendance.

Real World

An Australian real estate firm performed a remodel repurposing materials from its existing space, improving the efficiency of the air conditioning system, increasing fresh air intake, specifying interior finishes and furniture low in volatile organic compounds (VOCs), and adding over 500 plants to help improve the air quality. Employees rated their overall comfort in the space before the remodel at 54%, and those ratings jumped to 97% when the project was completed.

In the end, everyone is trying to win more work and make more money. Building green may not save you any more than conventional building methods during construction, however, the benefits realized for the building owners upon project completion can end up saving them more money and can be a huge marketing tool for GCs to win more work and charge a higher price.

Liked what you saw? Want to read more? Download the eBook "Is Green Building Worth It?" here for more info.

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